http://www.businessweek.com/articles/2013-06-06/electric-car-owners-get-taxed-for-not-paying-gas-taxes

Highways

Electric-Car Owners Get Taxed for Not Paying Gas Taxes


Electric-Car Owners Get Taxed for Not Paying Gas Taxes

Courtesy Tesla

Hugh Joyce, a contractor in Richmond, Va., owns three plug-in cars, and like many green-car evangelists, he’s unabashed about his love for them—especially his new $80,000 Tesla (TSLA) Model S. It’s “the most important vehicle since the Model T,” he says. “It’s the first electric car with a significant range, which is 300 miles, the sex appeal of a Ferrari (F:IM), the purchase price of an average luxury vehicle that’s a joy to drive.”

Joyce is about to pay more for his joy. Virginia will soon charge him and other green-car owners $64 a year to make up for lost gas tax revenue. The fee is “insignificant” compared with what drivers buying unleaded have to spend on fuel taxes, he says. But “on the flip side,” Joyce adds, “it is certainly a bad idea to disincentivize that car.”

Gas taxes are one of the main sources of funding for bridges and roads. But people are driving more fuel-efficient cars, and many states’ tax rates haven’t kept up with inflation during the past decade. That’s left less money available for repairs. Nationwide, gas tax revenue declined every year from $40.7 billion in 2004 to $37.9 billion in 2010, according to inflation-adjusted data from the Institute on Taxation and Economic Policy, a research group in Washington.

That’s a big reason Virginia and Washington State are levying green-car taxes and New Jersey, North Carolina, Indiana, and at least four other states are considering doing the same. “The intent is that people who use the roads pay for them,” says Arizona State Senator Steve Farley, a Democrat who wrote a bill to tax electric-car drivers 1¢ for every mile they log on state highways under a yet-to-be-devised tracking system. “Just because we have somebody who is getting out of doing it because they have an alternative form of fuel, that doesn’t mean they shouldn’t pay for the roads.”

Green cars made up only 3.3 percent of all vehicles sold last year, according to WardsAuto, which tracks industry performance. Any money states collect in the near term will probably only cover some potholes; Washington State anticipates bringing in just $127,900 next year from its new annual $100 tax on drivers who don’t fuel up at the pump. “There are not enough electric vehicles on the road to make a material difference to significantly reduce the revenue to the transportation funds,” says Lloyd Levine, a consultant for the Sacramento Electric Vehicle Association, who drives a Chevy Volt.

The real issue is that “regular cars are getting more efficient,” says John DeCicco, a professor at the University of Michigan Energy Institute. And gas mileage will continue to improve because of the Obama administration’s mandate that cars get 54.5 miles per gallon by 2025. “More miles per gallon means less gas tax per mile,” says DeCicco. “That’s the crux of the problem.”

Oregon might have the answer. Lawmakers are considering charging the owners of green cars—and of any car that gets more than 55 miles per gallon—a flat annual fee of $542.50, or a usage fee of 1.55¢ per mile. How the state would track drivers’ mileage would still have to be worked out. But nobody would get a free ride.

The bottom line: Virginia will soon charge electric-car owners $64 a year to offset lost gas taxes; in Washington State, the fee is $100.

Vekshin is a reporter for Bloomberg News.

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